The new Dodd-Frank reform bill that is signed into law during the fourth week of July 2010 will have a wide range of changes to many ways the banks and financial system works. In this article I will describe how this law will change payday loans.

Payday Loan Description

Payday loans are high-interest loans marketed to lower income customers who normally aren't eligible for credit cards and small bank loans. Payday loans typically charge between fifteen to thirty percent interest for a half a month lend.

Old Method

Regulation was different for each state determined by the state's usury laws. Companies would register their business in a state with no usury and then setup stores across the country.

What Changes

The new law imposes federal regulation through the new CFPB (Certified Financial Planner Board). This means that the CFPB may chose the interest rate cap and the payday lenders can't avoid this cap by registering their business in states with no usury laws like South Dakota.

My Opinion

I believe these changes are good and necessary. The Payday loan companies were preying on people who had no hopes of being able to work out of their situation with these outrageous interest rates. Now that there will be federal regulation they can no longer avoid states usury laws by registering in a select few states that don't have usury laws.

Hopefully with these changes people who need these loans will be able to take them and pay them back without too much money lost to interest and won't need to rely on this service as often.